Civil servants’ burden of debt

HERE’S an eye-popping statistic: Malaysian civil servants borrowed an average of RM6.4bil in December last year and January this year. This was highlighted by Bank Negara in its recent annual report.

Also alarming is that total disbursements of loans to all other personal finance borrowers in the country was way lower at an average of RM4.5bil per month for those two months.

Malaysia has around 1.5 million civil servants.

If that isn’t startling enough, consider this: civil servants are already highly geared with personal loans. There have been concerns that a number of them are using more than 60% of their salaries just to service their debt.

This is not new though. Lending to civil servants through automatic salary deductions has been around for a long time – since the formation of Angkasa (National Cooperative Organisation of Malaysia).

Angkasa is the national union that integrates cooperatives in Malaysia.

Over the years, it has built a robust interface system with the Accountant-General’s office that enables the salary deductions.

Now, aside from Angkasa, there are many other players in the sector, all equipped with the civil servant salary deduction code and seeking to provide loans to them for one simple reason – the loans are virtually risk-free to the lender.

It is understood that Angkasa makes a commission on every salary deduction of civil servants through this system.

The risks have been well-publicised. On Feb 17, Insolvency Department director-general M. Bakri Majid called for the salary deduction limit to be lowered to 55% (from the current 60% guideline) amid a rise in the number of bankruptcies among civil servants.

As of last year, 14.5% of civil servants were undischarged bankrupts, up from 10.3% in 2021. It is believed that the bankruptcies stem from their non-Angkasa related loans such as credit card debt.

Just this week, Angkasa president Datuk Seri Abdul Fattah Abdullah urged civil servants to manage their finances wisely and not take loans exceeding 60% of their monthly income.

The fact that the president is “urging” civil servants to cap their loan deductions to 60% tells us one thing – that there are no automatic controls of this salary deduction system.

This begs some key questions.

First, how many civil servants now have deductions totalling say 80% or even 100% of their salaries? Second, what is the total outstanding debt of civil servants in Malaysia today? A public figure is not available.

Since the whole Angkasa and salary deduction scheme does not come under Bank Negara, such statistics are not available in its detailed annual report.

Bank Negara is right to flag the situation. It also highlights another unsavoury development regarding civil servants and their debt – that scammers have targeted them.

It points out that organised fraudsters are targeting borrowers with repayment arrears, mostly civil servants, to refinance their existing debt with the false promise of lucrative returns from dubious investment schemes.

Meanwhile, the socio-economic fallout of the high indebtedness of civil servants is devastating.

Many years ago, the former chief executive of Malaysia Building Society, Ahmad Farid Omar, told us that more check mechanisms were needed to ensure there was no over-borrowing.

“There should be some way of determining that loans are only given for productive purposes such as buying land. An unnecessary high debt level among civil servants can lead to all sorts of problems,” he told this media back in 2010.

Those problems could include a temptation to secure money through other means.

It could be going to loan sharks or worse, soliciting bribes. One wonders if there is a correlation between the high indebtedness of civil servants and the incidences of graft among civil servants.

Efforts are being taken to increase financial literacy among civil servants, but it may not solve the ballooning problem.

What is required is a full-fledged commission to address all the issues: what controls are needed, solutions for civil servants who are deep in debt, and how to whittle down overzealous lending to civil servants using the salary deduction code.

Bank Negara should also be given more clout to oversee the matter considering the financial risks involved.